FIN504.M4.xlsx - Using the information provided in the...

This preview shows page 1 - 6 out of 23 pages.

Using the information provided in the following table, find the value of each asset. Cash Flow Asset EOY Amount Appropriate req'd return A 1 $ 5,000.00 18% 2 $ 5,000.00 3 $ 5,000.00 B 1-infinity $ 300.00 15% C 1 $ - 16% 2 $ 3 $ 4 $ 5 $ 35,000.00 D 1 $ 1,500.00 12% 2 $ 1,500.00 3 $ 1,500.00 4 $ 1,500.00 5 $ 1,500.00 6 $ 8,500.00 E 1 $ 2,000.00 14% 2 $ 3,000.00 3 $ 5,000.00 4 $ 7,000.00 5 $ 4,000.00 6 $ 1,000.00 - - -
Value of Asset $ 4,237.29 $ 3,590.92 $ 3,043.15 $ 10,871.36 $ 2,000.00 $ 16,663.96 $ 1,339.29 $ 1,195.79 $ 1,067.67 $ 953.28 $ 851.14 $ 4,306.36 $ 9,713.53 $ 1,754.39 $ 2,308.40 $ 3,374.86 $ 4,144.56 $ 2,077.47 $ 455.59 $ 14,115.27
Bond value and changing required returns Midland Utilities has outstanding a bond issue that will mature to its $1,000 par value in 12 years. The bond has a coupon interest rate of 11% and pays interest annually. a. Find the value of the bond if the required return is (1) 11%, (2) 15%, and (3) 8%.
c. Use your findings in parts a and b to discuss the relationship between the coupon interest rate on a bond and the required return and the market value of the bond relative to its par value.
d. What two possible reasons could cause the required return to differ from the coupon interest rate?
b.) There was a change in the firm's risk.
Par Value= $ 1,000.00 Coupon interest rate 11% Annual Interet Pmt $ 110.00 Number of years to maturity 12 b. Plot your findings in part a on a set of “required return (x axis)–market value of bond (y axis)” axes.
% 13% 14% 15% 16% et Value of Bond

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture